Working Capital Management

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What is 'Working Capital Management'

Working capital management is a managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other. Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses.

BREAKING DOWN 'Working Capital Management'

Implementing an effective working capital management system is an excellent way for many companies to improve their earnings. The two main aspects of working capital management are ratio analysis and management of individual components of working capital.

A few key performance ratios of a working capital management system are the working capital ratio, inventory turnover and the collection ratio. Ratio analysis will lead management to identify areas of focus such as inventory management, cash management, accounts receivable and payable management.

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RELATED FAQS
  1. Why is working capital management important to a company?

    Learn about a company's working capital; good working capital management is essential to maintaining a company's liquidity ... Read Answer >>
  2. Can working capital be too high?

    Learn more about the working capital ratio, and understand how an excessively high ratio can be considered a negative in ... Read Answer >>
  3. What does a low working capital ratio show about a company's working capital management?

    Find out the significance of working capital management for a company and look at the working capital ratio analysts use ... Read Answer >>
  4. How can an investor determine the efficiency of a company's working capital management?

    Learn how working capital is vital to a company’s survival. Also learn key metrics investors use to assess how efficiently ... Read Answer >>
  5. Does working capital measure liquidity?

    Learn about working capital and liquidity, and how working capital measures the liquidity, efficiency and overall health ... Read Answer >>
  6. How does working capital management affect corporate earnings?

    Understand why it is critically important for companies to efficiently manage their working capital and how working capital ... Read Answer >>
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